How can inflation change the distribution of income? Inflation
affects low earners more than high income earners. Low income earners tend not
to rise as quickly as prices, therefore, their purchasing power decreases.
Why don’t there seem to be costs to anticipated inflation? The
higher the rate of inflation, the lower the real rate of return on money, and
the less money we want to hold, in real terms.
The costs of anticipated inflation are straightforward to correct with
monetary policy.
Why do some individuals or firms experience a cost despite
perfectly anticipated inflation? Depending on much money they make, they might
or might not experience the inflation as strong as other firms.
Why do people dislike unanticipated inflation? People
dislike inflation because of money illusion. They mistake their nominal incomes
for real incomes and mistake consumer prices for the real cost of living.
Why does a new worker entering the labor force or a worker
who has lost a job probably will not find an acceptable job right away? Due to
frictional employment, the new worker needs to find the right job fit from them
and the job needs to find the right person for the job. It takes time to find
the job that is suitable for the worker and the person hiring the worker.
What are the categories of unemployment and their defining
characteristics? Frictional unemployment, seasonal unemployment, and structural
unemployment. Frictional unemployment is the time required to bring together employers
and job seekers. Seasonal changes in labor demand cause jobs to disappear in
the off season. Structural unemployment causes the government to intervene in
the economy.
What do people whose skill become obsolete and therefore
unemployed do to become employed again? Give an example. They need to learn and
train at a brand new job. For example, people working at a toll, eventually
when the toll machines become advanced in technology, the people will need to
learn to do something better, a new job will be recommended.
Why do firms lay off workers during a recession and rehire
during the following expansion? Some firms do not make enough money to pay the
workers. When the expansion is around, they have enough money to pay for the
workers.
What does the natural rate of unemployment consist of?
Frictional and structural unemployment.
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